I actually had a dream/nightmare a couple months ago about the market crashing. In the dream, I was standing on Google’s pristine campus, except it wasn’t Google; it was some sort of Mountain View central stock exchange. A couple minutes in, the huge stock ticker on the outside started showing stock after stock plumetting down to 0. And then I turned around, and the entire city of San Francisco was stampeding toward the exchange, while a valiant few tried to stop them. People everywhere were falling down and getting crushed, stockbrokers flying out of the surrounding trees and frantically trying to sell everything they had, and some larger-than-life man yelled, “STOP!!! You’ll cause another Great Depression!”.

This quasi-ridiculous dream halfway came true a couple weeks ago (right after the House voted down the bail-out bill), as I watched my personal desktop widget stock ticker – representing the stocks I had at one point or another so thoughtfully and methodically invested in – throw all my assets into the red at frighteningly high rates.

How does this affect the VCs? It’s darn hard to tell. You’ve got Sequoia’s scary “R.I.P. Good Times” presentation; Ron Conway’s ominous words of warning; but at the same time, Ron has been quoted as saying that the Valley will continue to thrive and he’ll continue to invest; and ventures at various stages are closing deals every day (Ignighter, FatTail, JS-Kit, and more). And everyone is buzzing about how 1st Round Capital is showing no signs of slowing down. Some of the guys I’ve met with openly admit that they’re shutting off for a while; some say they’re tightening up; some say they’re fine for now but anxious to see what’s about to happen; others say we’re entering the equivalent of a Silicon Valley apocalypse. I’ve been advised by some not to bother looking for funding because at this point it’s all a “charade”, and by others to make sure to keep looking because the burst hasn’t happened yet. Reactions are all over the spectrum.

I don’t think it’s in question that the individual investors behind some of the big funds are tightening up, but it seems yet to be determined whether the anxiety is going to affect the commitments of limited partners as well. If the LPs pull out, then we may have a situation even more dire than in the first bust. But it’s hard to say how realistic this is, when no one is even decided on whether this slump is going to last 3 days, 3 weeks, 3 months, or 3 years.